A conservative organization has filed a lawsuit against the U.S. Securities and Exchange Commission, alleging that the SEC exceeded its authority by approving a "racist, sexist" board diversity rule, which requires Nasdaq-listed companies to ensure certain kinds of diversity on their boards of directors or explain why they haven't.
The SEC "has a narrowly circumscribed authority: that of protecting shareholders in limited ways," Scott Shepard, director of the Free Enterprise Project at the National Center for Public Policy Research, said in a statement on the lawsuit, which the center filed last week. "In no way does this extend to social engineering of the sort attempted by the Nasdaq rule. It was thus illegitimate for the SEC to approve the rule."
"Companies should be free to appoint directors who will help their firms prosper," Justin Danhof, executive vice president of the center, added. "Mandating board appointments based on the color of candidates’ skin, their gender and their sexual partners is not only unconstitutional, but also pandering, racist, sexist and just plain offensive."
He claimed that "in allowing Nasdaq's board plan to go forward, the SEC is completely flouting the U.S. Constitution."
The SEC approved Nasdaq Stock Market LLC Rules 5605(f) and 5605 on Aug. 6. The rules mandate that listed companies (1) must disclose information about their board members' self-identified gender, race, and sexuality; and (2) either include on their board minimum amounts of individuals of certain gender, racial, and sexual identities or publicly explain why the board does not meet that "objective."
Nasdaq also offers companies access to a list of "board-ready diverse candidates" to help meet the "objectives."
In a response to public comments, Nasdaq contested the use of the term "quota" in describing the rules.
"Nasdaq’s Proposal is not a quota," the company insisted. "Nasdaq’s Proposal is a disclosure framework and does not set a quota or numeric mandate. Companies can elect to meet the diverse director objective or disclose why they do not, and the explanation can include a description of a different approach."
Nasdaq also insisted that its rule "will not force companies to appoint unqualified directors to meet the minimum diverse director objective."
Shepard responded to Nasdaq's claims in a statement to FOX Business.
"What the Nasdaq has demanded of listed companies, and what the SEC has unlawfully approved, is a quota tied to unconstitutional forced speech," Shepard said. "Companies must pick two of their board seats on the basis of race, sex and sexual-orientation characteristics, or they must explain to Nasdaq why they have chosen not to discriminate on the basis of legally suspect classifications."
Shepard argued that "this forced speech will of course make the companies targets for the howling woke mob."
"It is illegitimate for the SEC to approve outright discrimination by race, sex and orientation," he added. "It is similarly illegitimate for it to give the false choice: discriminate as required or hang a target on your back."
Nasdaq and the SEC declined to comment on the lawsuit.